BUYS, HOLDS, AND HOPES

It’s more than “interesting” that platinum prices are lagging gold. Gold has risen nicely since the meltdown following Lehman’s collapse, with the gold price in dollars rising 130%. Until last summer, however, platinum had done better still.

Indeed, a trader “could have made a lot of money buying platinum and selling gold since Lehman Brothers,” as Philip Klapwijk, executive chairman of GFMS said Wednesday, taking analyst questions after launching the precious-metals consultancy’s new Gold Survey 2012 at Thomson Reuters‘ HQ in London.

Over the 34 months to August 2011, the white metal rose 150%, recovering faster at first even than thegold price. But it needed to, however, after it dropped two-thirds of its dollar price between March and December 2008.
Since last summer, platinum has slipped faster than gold. More notably, it’s slipped below the gold price itself, something seen for only three trading days in December 2008 in the immediate aftermath of Lehman’s bankruptcy. Before that, you have to go back to the recession of 1991…the peak of the “strong dollar” disinflation of 1984…the global stock market’s once-in-a-generation low of 1982…and gold’s big tops of Jan. 1980 and Dec. 1974 to find platinum trading cheaper than the gold price.

Gold’s latest incursion above the platinum price is “interesting,” said GFMS’s Klapwijk on Wednesday. But scary might be closer to it. Running for 145 of the last 172 trading days, it’s getting to be something of a habit, too.

“There’s a case to be made for the white metal being priced at a premium to gold,” as Klapwijk said. The two metals’ scarcity in the earth’s crust is about the same, but platinum deposits tend to be more diffuse, making extraction more costly. On the demand side, it is clearly more “useful” than gold too, with one third of annual output going to industry and another third going to make auto-catalysts according to platinum experts Johnson Matthey. Fully 85% of global gold demand, in contrast, is for store-of-value or adornment. And there’s the rub.

The vast majority of investors will always prefer gold over platinum, as Klapwijk noted this week, because its store-of-value use is so very much greater than platinum’s. You could ascribe that to 50 centuries of habit, gold being “the universal prize in all countries, all cultures and in all ages,” as physicist and polymath Jacob Bronowski put it in his Ascent of Man.

Today that history is supported by the second, stronger point which Klapwijk made Wednesday: gold’s relative lack of industrial use. That makes it a far better defense against the kind of economic turmoil suffered since our financial crisis broke in mid-2007 (platinum up 24%, the gold price up 153%), as well as the economic crises of the mid-1970s and early ’80s.

Over the last 9 months in particular, Europe’s economic crisis has affected its vehicle demand, GFMS points out. That means lower demand for diesel engines and thus platinum-based catalysts worldwide. Gold may have suffered similarly lower demand amongst Western jewelry consumers, but Eurozone investors have stepped in to pick up that slack. And their counterparts in Asiaare buying gold with both hands, according to GFMS’s new Gold Survey 2012, along with pretty much anyone else who cares to look.

Published: Monday, 26 Mar 2012 | 8:39 AM ET

By: Reuters

Spot gold hit a session high just short of $1,680 per ounce on Monday, fueled by a stronger euro, after Federal Reserve Chairman Ben Bernanke said the U.S. labor market was “far from normal,” despite recent improvement.

Bullion prices posted the biggest one-day rise so far this month on Friday, reflecting higher oil prices and a sharp fall in the dollar as a result of disappointing U.S. housing market data.

Money managers in U.S. gold futures and options cut their bullish bets for a third straight week to the weakest level in two months as bullion prices tumbled after a strong run of U.S. economic data triggered fund selling.

Physical demand fromIndia, the world’s largest bullion buyer, remains a concern with a jewelers’ strike entering its second week after the government announced a hike in import duty on bullion.

The U.S. dollar index [.DXY 79.07 -0.25 (-0.32%) ] edged up from a two-week low hit on Friday, dampening sentiment on dollar-priced commodities by making them more expensive for buyers holding other currencies.

“There’s a good chance we’ll see a relapse in U.S. data since the economy is in a fragile recovery, which will lead to speculation on more quantitative easing, and that is positive for gold,” said Hou Xinqiang, an analyst at Jinrui Futures in the southern Chinese city of Shenzhen.

Hou said oil prices are unlikely to slide easily from current high levels given the sticky situation in Iran, another supportive factor for gold. Investors will closely watch changes in holdings of various physically backed exchange-traded funds in the last week of the quarter. The SPDR Gold Trust[GLD 163.75 2.2171 (+1.37%) ], the world’s biggest gold ETF, said its holdings fell 0.8 percent last week, the biggest weekly decline since late December.

This week, investors will also monitor key economic data fromGermany, bond auctions inItaly, and a meeting of euro zone finance ministers, during which the size of a bailout firewall is to be discussed.

The editor and publisher of the widely followed Gartman Letter said he remained positive on gold — “violently bullish in yen terms; I’m avoiding it in dollar terms” — and was “dead-solid neutral” on equities.

That position appeared solid, especially as the Indian rupee weakened and may have spurred buyers at the bottom.

“If you owned gold in yen terms, you never even get spooked,” he said, adding that a $10 drop earlier in the day did not cause him any worry. “It’s simply a better trade.”

“Let’s be blunt. Today’s number was really quite a good number, and I don’t think enough people are paying attention to how important the revisions are,” he said. “I always say that the direction of revision in most economic data is as important as the data itself, and the revisions have consistently been for the better.”

Gartman said the jobs report clearly showed employment was improving in the United States.

“Clearly, the economy is doing better,” he added.

The indicators suggest that the stock market would do well, but Gartman said they already have shown strength and he did not like its exposure at this point. In fact, he said he owned some shipping and natural gas, but was betting on the S&P to outperform them.

Published: Tuesday, 7 Feb 2012 | 6:15 PM ET

The gold price has been historically influenced by three main factors – currency hedging, jewelry demand and central bank activity. To these factors we add a fourth – the activity of Exchange Traded Commodity Funds.

The use of gold for currency hedging goes hand in glove with central bank buying activity. When fiat paper currencies are under threat then gold is the instinctive hedge. Investors worried about holding euros, and also worried about the weakness in the U.S. dollar start buying gold. The developing weakness in the euro, and the potential collapse or restructuring of the euro zone, is the main driver behind the current gold rally.

There has been an increase in demand for third party exposure to the market. This is provided by the Exchange Traded Commodity Funds. The Exchange Traded Funds now account for a significant proportion of gold trading activity and their investors are not motivated by the same concern as professional traders or gold industry participants.

Underpinning this investment behavior is the consistent buying by central banks as they seek to build reserves to protect their currency. In 2010 and 2011 central bank buying provided a firm foundation for the prolonged uptrend. There is no evidence to suggest that central banks will become sellers in the near term future so this up trend support remains in place. This combination of factors has created a strong and sustainable uptrend in gold.

The weekly COMEX [GCCV1 1747.50 16.20 (+0.94%) ]gold chart shows a strong trading channel. Starting in 2010 April the lower trend line defines the lower edge of the trading channel. The upper edge of the trading channel is confirmed in May 2010. The current rebound rally starting from near $1,570 uses the lower trend line as a rebound point.

Between May 2010 and July 2011 the gold price moved in a rally and retreat pattern inside the trading channel. The strong breakout above the upper edge of the trading channel developed in July 2011. After the peak near $1,924 in September 2011 the gold price developed a new downtrend. In October and November 2011 the upper edge of the trading channel acted as a support level. The rebound rally in October provided the anchor point for the new downtrend line.

The rebound rally that has developed from the December 2011 low near $1,560 has two important features.

The first feature is that the rally has moved above the upper edge of the trading channel near $1,720. The second feature is that the price has also moved above the value of the downtrend line, which also has a value near $1,720.

This breakout above two important resistance features is very bullish. The first upside target is near $1,800. This is the peak of the November 2011 rally and it is a weak resistance level.

The width of the trading channel is calculated and this value is projected upwards to provide the second breakout target. This is near $1,860 but there is a high probability the price will use the previous resistance level near $1,880 as a target level.

The long established pattern of trend development inside the trading channel suggests that any breakout towards $1,800 and $1,880 will have the characteristics of a rally rather than a sustainable trend. This provides short term trading opportunities. In the longer term the gold price may return to trading inside the trading channel.

Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders –www.guppytraders.com . He is a regular guest on CNBC’s Asia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe.

If you would like Daryl to chart a specific stock, commodity or currency, please write to us at ChartingAsia@cnbc.com. We welcome all questions, comments and requests.

CNBC assumes no responsibility for any losses, damages or liability whatsoever suffered or incurred by any person, resulting from or attributable to the use of the information published on this site. User is using this information at his/her sole risk.

Investing |1/06/2012 @ 9:02AM |3,292 views

The traditional, institutional analysts will say, “I don’t understand gold. Why would anyone buy gold?” You have to understand the motivation: an investment in gold is long term. It locks up the money. The commission or management fee is much better for stocks that are traded. Many analysts have an axe to grind.

Every correction in gold is usually pronounced as the start of the “big gold bear market.” We have disagreed with that for the past 10 years. In fact, the most recent correction even turned many of the bulls bearish, while our technical indicators gave positive buy signals.

If you are skeptical about the long-term bullish case for gold, please consider this: A study by Stephen Cecchetti and his team at the Bank for International Settlements (BIS), which is often called the “Central Bank for Central Bankers,” concluded:

“The debt problems facing advanced economies are even worse than we thought.

“The basic facts are that combined debt in the rich club has risen from 165pc of GDP thirty years ago to 310pc today, led by Japan at 456pc and Portugal at 363pc.

“Debt is rising to points that are above anything we have seen, except during major wars. Public debt ratios are currently on an explosive path in a number of countries. These countries will need to implement drastic policy changes. Stabilization might not be enough.”

In my opinion, the compounding interest on this debt is even more ominous than the actual level. There is no way that this debt will ever be reduced. Remember, much of this debt was accumulated during the boom years when tax receipts were very high. Now we will be in long period of stagnation or worse, possibly lasting 10-15 years or until the next big war. That means tax revenues will be on a long-term decline even as tax rates rise. The debt levels will grow exponentially.

Trillions of sovereign debt, private debt, and bank debt have to be refinanced. Where will that money come from? The printing press, or with today’s technology, “cyber-money.” There is no other way out. And that will make gold the only true money that will hold its value.

Sometime in the future, there could actually be a gold shortage. This is not unrealistic. All the major mining companies say that it is becoming very difficult to find new deposits. CNBC had a great report on the South African mines. They sent one of their top people, Bob Pisani, to do a report. He went 2 km down into a mine where the air-conditioned temperature is 100° F. Without air conditioning, it would be 130°. It was a fascinating report about the mining, refining, and then the ETFs.

Some of the South African mines are as deep as 4 km. Gold mines in other parts of the world, like Latin America, are facing dangers of being expropriated by their local governments. That dampens the enthusiasm of foreign mining firms to invest huge sums in new mines. It takes up to 10 years to get a new mine into production. If you are ever tempted to go into one of the penny stock gold exploration firms, just ask them, where will they get the tens of millions of dollars required to go into production?

In the meantime, the gold purchases by people in India and China are soaring. These two countries are 52% of all gold demand right now, vs. just 25% a few years ago.

And in the western world, the gold-holdings of the ETFs are locking up gold supplies. For example, the SPDR Gold Shares (GLD) now holds 1,200 tons of gold, stored in England. The more the buying of GLD and other ETFs increases, the more gold will be taken off of the market, i.e., the shortages increase. Secured storage facilities are running out of space. New facilities are hurriedly being built.

We are now at the point in the long term cycle where institutions are just starting to consider gold an “investable” asset worthy of their portfolios. All the other areas of the stock markets are no so closely correlated that it doesn’t matter which sector you hold.

We are still in the earlier phases of the gold bull market. In 1981, my firm predicted a 20-year bear market in gold (bottom in 2001) and then said that this would be followed by a 30-year bull market according to our cycle studies. The start of the current gold bull market was in 2001, exactly 20 years later. If my 30-year bull market cycle comes true, then there is quite a bit of excitement still ahead.

What could possibly cause that? In 1981 when we made the 30 year bull market forecast, we said we didn’t know what would cause it. Now we know: unprecedented and unsustainable debt levels of governments around the globe and a threatened implosion of the debt pyramids. The power of compounding of governmental debt alone will continue to increase that debt. It will require ever more money-creation just to service the debt. Taxes alone cannot do it. Big tax hikes will only worsen the debt problem. Compound­ing at any rate, even at 1%, is unsustainable over time. Just try it on your HP calculator.

Short of a total collapse of Gold to levels in the last quarter of 2010 Gold will see gains of over 18% for the year. The S&P 500 current retraction is right at -1.80% making it the first decline since the bottom of the Great Recession in early 2009.

This is not to say Gold has enjoyed smooth sailing in 2011, as the final 2 quarters of this year have born out. Gold reached an all-time high in Dollars on Aug 23, 2011 of $1,920 then quickly pulled back to $1609.70 a 19% drop in a little more than a month. The high was just dollars short of our estimate of $1927 in June. (Gold Out Performs S&P 500) Since then Gold has been trading more like a equity stock than the safe-haven currency it traditionally has held.

Gold’s traditional position of 1.5 time the price of the S&P 500 it would place the price near $1,850. With the current spot at $1,658 Gold has the potential for another 11.5% run before the traditional January sell off. Gold should return to a safe haven status with in the next 3 months allowing investors to continue earnings that should out perform the S&P 500 for the near & mid term.

Wall Street has been in the precious metals markets for over two decades, assisting clients in bolstering their retirement accounts with bullion. Morgan Stanley, among others offers clients the opportunity to own SEC approved bullion in Gold, Silver, Platinum, & Palladium. These can be acquired in various products including bullion bars, American Eagles, American Buffaloes, South African Krugerrands, Austrian Philharmonics & Canadian Maple Leafs.

The catch is the client never takes physical possession of the bullion: it is held in SEC-approved vaults. These vaults are regulated to hold a one-to-one ratio of metals to client holdings. In 2007, Morgan Stanley had to make restitution to clients for not keeping this agreement with their clients despite still charging clients storage fees. (read further here)

Two decades ago a number of major Wall Street firms entered the rare coin market. Merrill Lynch, Kidder, Peabody & Co. Inc and Shearson Lehman Hutton, each took root during the heady days of Wall Streets’ bull-run in the late 80’s. Each one had a slightly different approach to rare coins.

The first two started funds that ended in well documented failure. Shearson Lehman Hutton actually sold PCGS & NGC rare coins in their 11,000 locations. Yet, shortly after the previous two folded, Lehman down-played this investment, stopping altogether when the company filed bankruptcy for involvement in the sub-prime loan scandal.

Wall Street once again is looking at the rare coin market as an investment. They have watched the decade-long rise in prices and feel that now is the time to re-enter. One fund has recently announced it will pour upwards to a half-billion dollars into four separate funds with holdings exclusively in rare coins & precious metals.

This fund involves a major player in the coin market with previous, all though dubious, experience in coin funds joining forces with a known Wall Street fund manager. They hope to finally perfect the elusive formula of melding coins and Wall Street money into a winning fund.

While this has a great potential for success it has a previous track record of failure and decimating the rare coin markets. The PCGS 3000 Index is a method of tracking the price fluctuations in 3000 rare coins as determined by experts in the rare coin industry. This index has grown by 6667.25% since 1970 when they started keeping track.

As shown by this chart there is two very distinct peaks. The first is during the gold & silver runs in 1979 & 1980. This is a time prior to third-party grading services entering into the rare coin market and was driven exclusively on the price of metals.

While an impressive spike at the time, it pales in comparison to the run made in 1989 and 1990 fueled by Wall Street entering the rare coin markets based on the promise of standardized grading. This is not to say these grading services were responsible or at fault. In fact, to the contrary, these services have added a much needed standardization to this market; protecting clients & investors from acquiring counterfeit or doctored coins potentially costing thousands of dollars in investments.

The second spike took prices on most coins to levels still not seen today. If you can find a 1989 Whitman Red Book Price Guide you will find prices at the height of the rare coin bubble. Try getting those prices today.

There were a number of factors in this spike, the search by Wall Street to find alternate investing after the 1987 crash along with the aforementioned entry into the market of third-party grading. Another factor was the short term success of the funds developed in the latter part of 1986. It was a rush to rare coins similar to what we saw 10 years later with tech stocks in the Dot.Com bubble. Wall Street saw the past returns on rare coins and jumped in with both feet.

A couple of other charts also confirm to varying degrees the similar results to both spikes. As shown below:

The above chart shows all coins tracked by the PCGS 3000 that are in Mint State (MS60 to MS70) according to the grading services. These coins are the cream of the numismatic world, while not all are showing tremendous gain individually. We see the same profile as the entire market.

The above index follows a smaller segment of rare Gold Coins in MS60 to MS70. (Although, there are no rare coins that qualify for MS70) It basically mirrors the previous charts with similar results. These coins while rare by grade may not actually be rare by type or year.

There is one final chart that stands out from the rest. It is the Key Dates & Rarities chart (see below). This is comprised of all key dates for each coin type in all metals. It also includes those coins that are truly rare or scarce based on actual limited supplies.

One of these key series is the Carson City Mint $20 Double Eagles. It has a number of scarce coins including the king of rarities in this set, the 1870 Carson City $20. This coin is estimated to only have 45 to 55 survivors most of which are in the VF to XF grades. Only a handful are in the AU grades and can command upwards of $400,000 plus.

As you see these coins have the two spikes in 1979-80 & 1989-90 but what you don’t see is the dramatic drop off. Instead you have steady growth over the last two decades with a small retraction after the Great Recession of 2008.

This segment of the rare coin market shows the least volatility returning consistent gains over the last two decades. Many investors have enjoyed these type returns over the years as they have invested in this segment of the rare coin market. It is these coins that we see the greatest potential to preserve your wealth for the long term with the best potential for gains.

Conclusion:

With Wall Street heading back into the rare coin market now is the best time to acquire before the prices are run up, removing hundreds of millions of dollars in rare coins from circulation. Will there be a spike and retraction as in the past? No one can tell the future. Yet, if Wall Street holds true to form, you will see an initial frenzy driving up prices then at minimum a retraction as they settle into this market for the long term.

You as the savvy investor can take advantage of this trend by getting in before the rest of Wall Street gears up and enters. Making solid acquisition in Key Dates & Rarities should allow you an investment that can bring years of returns and the security your investment will be protected.